Moving from principles to action for energy supply that mitigates against climate change requires a long-term perspective. Energy infrastructure takes time to build up; new energy technologies take
time to develop. Policy shifts often also need many years to take effect. In most world regions the transformation from fossil to renewable energies will require additional investment and higher supply costs over about twenty years.

Further cost reduction potentials are assumed for fuel power technologies in use today for coal, gas, lignite and oil. Because they are at an advanced stage of market development the potential for cost reductions is limited, and will be achieved mainly through an increase in efficiency.

There is much speculation about the potential for carbon capture and storage (CCS) to mitigate the effect of fossil fuel consumption on climate change, even though the technology is still under development.

CCS means trapping CO2 from fossil fuels, either before or after they are burned, and ‘storing’ (effectively disposing of) it in the sea or beneath the surface of the earth. There are currently three different methods of capturing CO2: ‘pre-combustion’, ‘postcombustion’ and ‘oxyfuel combustion’. However, development is at a very early stage and CCS will not be implemented - in the best case - before 2020 and will probably not become commercially viable as a possible effective mitigation option until 2030.

Cost estimates for CCS vary considerably, depending on factors such as power station configuration, technology, fuel costs, size of project and location. One thing is certain, however: CCS is expensive. It requires significant funds to construct the power stations and the necessary infrastructure to transport and store carbon. The IPCC special report on CCS assesses costs at $15-75 per ton of captured CO2, while a 2007 US Department of Energy report found installing carbon capture systems to most modern plants resulted in a near doubling of costs. These costs are estimated to increase the price of electricity in a range from 21-91%.

Pipeline networks will also need to be constructed to move CO2 to storage sites. This is likely to require a considerable outlay of capital. Costs will vary depending on a number of factors, including pipeline length, diameter and manufacture from corrosion-resistant steel, as well as the volume of CO2 to be transported. Pipelines built near population centres or on difficult terrain, such as marshy or rocky ground, are more expensive.

The Intergovernmental Panel on Climate Change (IPCC) estimates a cost range for pipelines of $1-8/tonne of CO2 transported. A United States Congressional Research Services report calculated capital costs for an 11 mile pipeline in the Midwestern region of the US at approximately $6 million. The same report estimates that a dedicated interstate pipeline network in North Carolina would cost upwards of $5 billion due to the limited geological sequestration potential in that part of the country. Storage and subsequent monitoring and verification costs are estimated by the IPCC to range from $0.5-8/tCO2 (for storage) and $0.1-0.3/tCO2 (for monitoring). The overall cost of CCS could therefore be a major barrier to its deployment.

For the above reasons, CCS power plants are not included in our economic analysis.

Table 4.5 summarises our assumptions on the technical and economic parameters of future fossil-fuelled power plant technologies. Based on estimates from WEO 2010, we assume that further technical innovation will not prevent an increase of future investment costs because raw material costs and technical complexity will continue to increase. Also, improvements in power plant efficiency are outweighed by the expected increase in fossil fuel prices, which would increase electricity generation costs significantly.

table 4.5: development of efficiency and investment costs for selected new power plant technologies